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Current account deficit widens to 1.1% of GDP YoY in 3QFY25...

…led by the higher merchandise trade deficit

* India’s Current Account Deficit (CAD) narrowed sequentially to USD11.5b (or 1.1% of GDP) in 3QFY25 vs. USD16.7b (1.8% of GDP) in 2QFY25 but widened as compared to USD10.4b (1.1% of GDP) in 3QFY24 (Exhibit 1).

* The widening of CAD on a YoY basis can be attributed to a rise in merchandise trade deficit to USD79.2b (7.9% of GDP) in 3QFY25 from USD71.6b (7.7% of GDP) in 3QFY24. On the contrary, net service receipts increased to USD51.2b (5.1% of GDP) in 3QFY25 from USD45b (4.9% of GDP) in 3QFY24. The higher services account surplus is attributed to robust service exports (17.9% YoY, highest in seven months), on account of the rising exports of computer and travel services. Additionally, the surplus on the income account stood at USD16.5b (1.6% of GDP) in 3QFY25 vs. USD16.2b (1.8% of GDP) in 3QFY24 (Exhibit 2). Overall, the invisible surplus increased to USD67.7b (6.7% of GDP) in 3QFY25 from USD61.2b in 3QFY24 (6.6% of GDP).

* Merchandise imports stood at USD189b in 3QFY25, higher than USD178.3b in 3QFY24. While imports of petroleum products increased to USD51.5b in 3QFY25 from USD41.8b in 3QFY24, imports of valuables increased to USD33.2b in 3QFY25 from USD20.8b in 3QFY24. Merchandise exports increased 3% YoY in 3QFY25 (USD109.8b) vs. growth of 1% in 3QFY24 (USD106.6b).

* Notably, India’s Current Account Balance (CAB), excluding petroleum products and valuables, posted a surplus of USD40.6b (or 4% of GDP) in 3QFY25 vs. a surplus of USD26.1b in 3QFY24 (or 2.8% of GDP; Exhibit 3). Excluding gold, India’s Current Account Surplus (CAS) was 0.8% of GDP in 3QFY25, up from a surplus of 0.4% of GDP in 3QFY24. CAS, excluding petroleum products, surged to USD21.1b (or 2.1% of GDP) in 3QFY25 vs. USD12.4b (1.3% of GDP) in 3QFY24.

* The capital account witnessed outflows in 3QFY25 from inflows in 3QFY24 on account of outflows of USD11.4b (vs. inflows of USD12b in 3QFY24) under foreign portfolio investment and outflows of USD2.8b (vs. inflows of USD4b in 3QFY24) under foreign direct investment. Additionally, non-resident deposits recorded a lower net inflow of USD3.1b in 3QFY25 than USD3.9b in 3QFY24. Accordingly, there was a depletion of USD38b to the foreign exchange reserves (on a BoP basis) in 3QFY25 as against an accretion of USD7b in 3QFY24 (Exhibit 4).

* Based on YTD data, India’s CAD widened to USD37b (1.3% of GDP) during Apr-Dec’24 from USD30.6b (1.1% of GDP) during Apr-Dec’23 primarily on account of a higher merchandise trade deficit. Consequently, we have increased our CAD forecasts to 1.0%/0.6% of GDP for FY25/FY26 compared to 0.7%/0.6% estimated earlier.

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